EDMONTON – In Toronto, billionaire steel magnate Alex Shnaider wants to buy the Maple Leafs. In Edmonton, two groups, one led by billionaire drugstore czar Daryl Katz, are battling for control of the Oilers. In Vancouver, after a long court fight between two groups of old partners, both desperate to own the Canucks, one partner, Francesco Aquilini, has finally come out on top.

After a long period of economic dark days, Canadian NHL franchises are suddenly a hot commodity.

So what has changed?

Owners, academics, business journalists and financial experts say a number of factors have combined to make Canadian teams a better risk — namely the strong Canadian currency, the financial stability brought about by the 2005 collective bargaining agreement (CBA) between the players union and the league and, finally, a new kind of development model for NHL arenas that is seeing them built not as lonesome, stand-alone structures but as catalysts for larger

THE DOLLAR: THE BIG DIFFERENCE

The value of the Canadian dollar is crucial for Canadian teams because their revenue comes in Canadian dollars but their major expense, players’ salaries, is paid out in U.S. funds. For several decades, this put Canadian teams at a tremendous disadvantage. As recently as January 2002, the Canadian dollar traded for 61.79 cents US, its all-time low, part of a trend that saw the Canadian dollar trade for under 70 cents from 1996 to 2003. Partly as a result, in 1995 the Quebec Nordiques moved to Denver, and in 1996 the Winnipeg Jets moved to Phoenix.

The Canadian teams were in so much trouble that NHL commissioner Gary Bettman had to initiate a financial assistance program that saw millions of dollars transferred from American owners to Canadian owners, much to the chagrin of the Americans. As Washington Capitals owner Ted Leonsis recently groused on his blog: “I remember having to pay corporate welfare to help Canadian clubs in the NHL under the banner of an assistance program. I remember a broker coming to me to sell the Montreal Canadiens on the cheap. The book was being sent around via e-mail to buy the team and an American bought it for a song. That was not long ago.”

Leonsis is referring to American businessman George Gillett’s 2000 purchase of 80 per cent of the Montreal Canadiens and the Bell Centre for $185 million US.

But the Canadian dollar has been on a rocket ride in recent years, reaching parity with the U.S. dollar in September 2007. Just as the value of the Canadian dollar has shot up, so has the value of Canadian franchises. “It’s a big driver,” says Cal Nichols, former chairman of the Edmonton Investors Group (EIG), owners of the Oilers.

In 2002, Edmonton was the least valued franchise in the NHL at $86 million US, worth just $16 million more than what the EIG paid for the team in 1998. But in Forbes magazine’s October 2007 valuations of NHL teams, the Oilers were valued at $157 million and ranked 18th overall.

Other Canadian teams have seen similar increases in franchise value, moving up an average of 12 places in the rankings. The revenues of these Canadian teams have also shot up in comparison to their American competitors, with Canadian clubs rising an average of 11 spots since 2002.

The Oilers moved from revenues of $43 million in 2002 to revenues of $71 million, according to Forbes. But Nichols says the Oilers revenues are now higher than the Forbes estimates, with the team sixth overall when it comes to gate receipts and likely close to the top 10 when it comes to overall revenue.

Because of the low dollar, Canadian teams were able to justify cranking up ticket prices in the past decade, says University of Alberta physical education professor Dan Mason, as they had argued that without high prices they could not pay big salaries in American dollars. But as the dollar has risen, Canadian ticket prices have remained high, Mason says, much higher than the U.S. teams.

According to Team Marketing Research’s report of October 2007, the six Canadian NHL teams are all in the top 10 when it comes to ticket prices, with the Leafs and Canadiens leading the league with an average ticket price (all US dollar figures) of $88.32 and $67.55, respectively. The Oilers are fifth with an average ticket price of $61.09. The league average is $48.72. “Now it’s acceptable for no tickets to be less than $140 in the lower bowl (in Canadian NHL cities),” Mason says.

With both revenues and the Canadian dollar so high, it’s more of a seller’s market now in Canada, Mason says. “If you think the dollar is going to settle down, it wouldn’t necessarily be a bad time to sell.”

Canada is so strong now that it made little sense not to move the Nashville Predators to Hamilton last summer, says Drew Dorweiler, a principal at the Montreal business valuator Wise, Blackman. The move was only thwarted after Nashville’s owner turned down a $240-million offer from Canadian BlackBerry tycoon Jim Balsillie (pictured). “It would have been a fantastic idea,” Dorweiler says of the Hamilton relocation. “I can’t believe someone is actually foolish enough to buy a team and keep it there (in Nashville).”

An NHL team in Winnipeg would also make sense, Dorweiler says, but only if the Canadian dollar shows it can maintain its strength over the next few years.

COST CERTAINTY: THE NEW PARADIGM

NHL owners were big winners when the players agreed to a new CBA in 2005, one that limited players’ salaries to 54 to 56 per cent of all hockey-related revenues for each franchise, no more than $50 million US per team this season. The salary cap brought something that financial experts call “cost certainty” to all NHL teams but this factor most favoured the small-market teams, such as Edmonton. “They are able to compete more,” says Gordon Saint-Denis, an executive with CIT (Commercial Investors Trust), a commercial finance company and leading broker of professional sports teams in Manhattan.

This year, the Oilers are spending up to the cap maximum, with salaries totalling $50 million, sixth highest in the league, reports NHLnumbers.com. Every Canadian team is now in the top 15 when it comes to players’ salaries. Unlike many American teams, they can count on a reliable fan base to support such high salaries, Saint-Denis says. “There’s more certainty with respect to your fanbase. … You don’t have to have a Stanley Cup champion to get people in to see your games, where in the non-traditional markets, they really need to catch lightning in a bottle to get fans to wake up.”

But cost c
ertain
ty has made it easier for all NHL owners, in both Canada and the United States, to sell for a good price. “It’s a whole new paradigm with respect to what they’re buying,” Saint-Denis says. “You can sit down and do a budget and say, ‘Here is what players are going to cost at the most.’ “

Nashville’s former owner, Craig Leipold, bought his team for $80 million in 1998, then reportedly lost $70 million in his nine years running the club, but was able to sell it for $193 million last November. “Prospective buyers are seeing big upsides,” says Michael Ozanian, national editor at Forbes, who has prepared the NHL franchise valuations for a decade now. “If you can get a good building deal and with the salary cap, you can make money with a hockey team, even if a national TV deal never comes through.”

ARENA REDEVELOPMENTS: THE NEW RECIPE

The new focus for NHL owners, and other pro sports owners, is to be involved in a real estate deal where a new sports arena and franchise are the catalyst for a greater development in the immediate vicinity, such as the construction or remodelling of hotels, movie theatres, shopping malls and condo units.

“It’s the new recipe of pro sports,” says Saint-Denis. “It’s the evolution of the sports franchise, where you combine it with real estate and brand it with the sports franchise.”

“You see almost every big arena or stadium project these days encompassing something like that,” says Kevin Reichard, publisher of Arena Digest. “It’s to ensure a revenue stream to help build the buildings because public sources of funding are on the wane.”

Taxpayers may not want to build a new arena for a “greedy sports owner,” Reichard says, but if the arena project includes new housing, offices and retail, they might be more amenable to some public financing, in terms of the city paying for infrastructure costs or donating land.

Numerous projects have been built or are under construction along these lines, almost all of them a mix of private and public funding, including redevelopments around the arenas in Los Angeles, Denver, Dallas, Columbus and Toronto (pictured above) and the ballparks in San Diego and Baltimore. “The goal is to create a district where you have constant activity,” Mason says, which is why football stadiums don’t work so well in this context as they only have a small number of operating dates each year.

In San Diego, the Padres owner paid $153 million US towards the building of the new $456.8-million ballpark (pictured), with the rest being public funds, but the city is recouping money from new taxes generated from the $1.5 billion in development around the park, Mason says.

In Columbus, Nationwide Insurance built the rink and redeveloped the surrounding 95-acre area at a cost of only $32.5 million to the city in the form of infrastructure upgrades, Mason says. “When you think about how much the South Edmonton Common interchange is going to cost, it’s peanuts.”

In some of these developments, such as the proposed Maple Leaf Square with its two massive retail/residential towers near the Air Canada Centre, the team owner is part of the private ownership of the greater redevelopment. In others, such as in Columbus (pictured), one business builds the arena and redevelops the area, then leases the rink to the team owner. But all these projects have worked well to revitalize slumping areas in American cities, Saint-Denis says.

If the new Oilers owner or owners get involved with a massive area redevelopment around a new arena, there is less likely to be controversy about public money going into the venture, Mason says, as the interests of the city and team owner to create a vibrant area in the core will align.

There will also be few worries about the team picking up and leaving Edmonton. “It makes no business sense for the team owner to decrease the profitability of his or her other business ventures to relocate,” Mason says.

When people think about the lack of vibrant development around Rexall Place, they get the wrong idea about how things will unfold in Edmonton’s arena project, says Jim Taylor, executive director of the Downtown Business Association. Any new development will have to include numerous amenities, such as condos, retail and public spaces. “This is so much more than a sheet of ice for the Oilers, but that becomes the catalyst for this kind of development.”

Oilers fans have wondered if it’s better to have one rich owner or a large, less-cohesive group, such as the EIG, own the team, but Mason says this isn’t the issue. The key is to come up with the right redevelopment plan for the arena project, a big unknown right now.

In his bid to own the Oilers, Daryl Katz has talked about putting $100 million towards the building of a new arena but it’s not known what his plans are for any kind of greater redevelopment, or how much control of all arena revenues he will ask for in return for that initial investment.

Things are similarly murky right now with the EIG’s new chairman, Bill Butler, a land developer, and his plans.

Taylor, a member of an arena advisory board subcommittee, says both Butler and Katz (pictured) would be looking at a major redevelopment, not just the construction of a stand-alone arena.

“I think they realize you can’t take a Rexall Place and plunk it downtown. Nobody is going to want that. … I know these guys are big thinkers. They’re smart enough to realize that to get what they want (a state-of-the-art arena), it has to be part of this bigger picture,” Taylor says.

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